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Frequently Asked Questions

1.       Why would the city even consider giving a tax subsidy to a shopping mall?

Sales tax comprises a large portion of the total tax revenue and the city mistakenly felt Austin was losing a disproportionate share to Round Rock and Georgetown.  City Manager Toby Futrell set off alarms when she claimed that Austin’s tax revenue had fallen 30% over the last decade when, in fact, it had steadily increased.  Austin was already reaping 67% of the region’s sales tax with only 55% of the regional population.  The only thing that had really fallen was Austin’s share of the region’s population as Round Rock and Georgetown grew. A well-connected developer sensed the council’s vulnerability and promised to solve their problems through a new “lifestyle” mall and falsely claimed that needed public money to be “viable” when in fact it was $28 million in the black.

2.  What type of subsidies are they and what would be the impact of stopping retail subsidies — couldn’t that hurt local business besides The Domain, who really need help?

The proposed cure to the non-existent problem was a luxury mall that would bring in totally new shoppers, with totally new money coming from outside the city of Austin to generate new sales taxes.  The developer would get to keep 80% of this “new” sales tax for the first 5 years and 50% for the next 15 year plus 25% of the property tax for 20 years.  New shoppers were essential because the existing shoppers already paid the full sales tax. Any shoppers moving to the Domain from the Arboretum would represent a net loss to the city of 80%.  Despite the leap in logic and fantasy assumption of 100% new shoppers, the city council approved the agreement.  Not surprisingly, the new shoppers failed to materialize and the Domain simply pulled shoppers from existing Austin stores and restaurants forcing closures and layoffs.

3.  Don’t subsidies create jobs, which are so needed now?

One could make that argument for manufacturing subsidies, which would be better argued as “new jobs” to the region.  It’s hard to make a claim that retail subsidies are ‘new jobs”, since retail is such a highy competitive market place.  The Domain is simply shorting many jobs from one part of the city to another.  So, in effect, we’re using tax dollars to fund retail “cannibalizing” itself.  The developer promised $35,000 per year average salaries which is $10,000 higher than reality.

4.  Does the SDS amendment affect manufacturing subsidies?

No.  Manufacturing subsidies are not part of this debate.

5.  Will killing retail subsidies hurt other projects, like Mueller, which has some retail contained within that project?  In other words, what about “unintended consequences”?

Our charter amendment was written to exempt out such projects like Mueller.  We also met with city staff, who agreed that our amendment wouldn’t hurt Mueller or other projects.  And, we have encouraged the city to simply amend the Mueller contract, if they have any concerns.

In addition, the board of the Mueller project IS the City Council.  That means that the Council can easily — if they really think there’s a problem — change one sentence in the Mueller Project contract and get added protection.  The question of why they haven’t done this needs to be asked of the Council, since a few members (Shade & Martinez) have been heard mentioning “unintended consequences”.  Council needs to do their duty as office holders, not be playing politics at a time when the city is in budget crisis and considering cutting such basic services as libraries.

6.  Will the language of Prop 2 still allow current Mueller benefits to continue legally and future TIF districts where local tax revenue can go to local improvements?

TIF’s (Tax Increment Financing) are specifically exempt from the Prop 2 charter.  Projects like Waller Creek and Mueller which use (or will use) TIF’s for some of their financing will continue as always.  Here is the exemption language from the proposed charter:

(iii) an expenditure of funds (other than a tax abatement) pursuant to the Tax Increment Financing Act, Tex. Tax Code Chapter 311 or tax increment financing effected pursuant to Tex. Loc. Gov’t Code Chapter 374, as amended from time to time

Mueller also has a $12 million sales tax bond paid by the sales tax from the Home Depot, etc…  We maintain all of Mueller is exempt under certain other Prop 2 exemptions like the permitted cost sharing of infrastructure but the detractors say no.  Prop 2 been certified for the ballot since Feb 19th . If the city was really worried, they have had 8 months to alter the contract or rework the loan.   The city could also just set aside the money to pay the bond early now that the general fund will be so much richer without the Domain payments.  Pay off our debts early, now that’s a novel idea.

7.  How is it that taxpayers are impacted by these types of subsidies?

If we weren’t giving these subsidies to the Domain, those funds would go in to our city’s general fund.  The city has been in a considerable shortfall for several budget cycles.  So much so, this year, they’re seriously considering cutting back public libraries for a day, as just one example.  In addition, when we subsidize out of state chains, like those at the Domain, this hurts our local home grown businesses, that will likely never receive any tax breaks from the city.  National chains also take money out of the local community to wherever their corporate headquarters are.  Our local businesses spend it here, creating what is called the “multiplier effect” that local businesses have on the local economy.

8  Are you against growth?

No.  You can’t stop growth.  But what you can do is stop shaking down taxpayers to pay for things that developers should pay for.  And, in the case of the Domain, it’s ludicrous to ask taxpayers to pay for a high end shopping mall, or retail at all.  The very nature of retail is “sink or swim” economics.  It’s highly competitive and the city should not engage in picking winners and losers.

9.  Isn’t this thing a done (not just dumb) deal?

Brian Rodgers’ law suit in 2003, resulted in a settlement with the developer that the City could walk away without penalties.  As well, there is no honor for the city standing by a deal that was dishonestly brokered by the developer.  Be sure to read the “7 misrepresenations” on our web site here:  Tell the City to walk away by voting Yes on the SDS Amendment in November.

10.  Who that’s on the Council now, supported this?

Will Wynn is the only Councilmember left who was on the Council in 2003 when the Domain deal was passed.  All Councilmembers voted for this subsidy, except Daryl Slusher.

11.  How did the deal get passed so quickly, without anyone knowing much about it?

The Domain agreement is simply the case of a well-connected developer cutting a backroom deal with no public input and trotted out at the last minute for the vote.

12.  What does the actual amendment do and not do?

The amendment will ban the use of retail subsidies by the Austin City Council.  It does not interfere with any other funding mechanism the city can use to help small businesses or other projects.

13.  Why is this being done by a charter amendment?

We thought that Austin taxpayers deserved an outright ban on retail subsidies. So did the voters of the state of Arizona, by the way, who passed a statewide ban.  If we put it in the charter, it cannot be overturned without a vote of the people.  And, although voters have the right to referendum (to petition for a vote to reverse a council decision), the city’s rules to get referenda on the ballot make it virtually impossible to get the signatures in the numbers of days allowed.

14. Will passing Prop 2 hurt the local businesses located at the Domain (or any of the stores there?)

No.  Our understanding is that the developer, Simon Malls, gets the tax rebates.

Comments

Comment from les mcgehee
Time September 14, 2008 at 8:56 pm

Yes let’s do what you say. The domain is obviously a bad deal. I think many subsidies are bad deals though, across categories, not simply retail vs manufac.

I think the point is that no deal should be able to be done fast, without due diligence. Especially any deal with an individual developer, or over a certain amount. Is that language in the prop?

thanks for fighting for us, les

Comment from Walt
Time September 23, 2008 at 4:29 pm

Can you please direct us to the exact wording of Proposition 2?

Comment from Linda
Time September 28, 2008 at 8:56 pm

Thanks to Les for your comment, and Walt, the language for Prop 2 is the second menu item on the left, “SDS Charter Amendment Language.” Cheers! SDS

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